In New Zealand, trusts can exist for up to 125 years. In this time, a lot of things can happen, and you may want to change your discretionary or family trust to reflect those changes. Depending on what you want to do, changing certain parts of a trust may end up creating an entirely new trust (which is called a ‘resettlement’) which may bring troublesome tax and administrative concerns. So, it is important to know what changes you can make to your trust so that it best serves your needs without triggering any issues. This article will outline some changes you can make and how you can do so.
What Changes Can I Make?
Your first point of reference whenever you are dealing with a trust is to look at the trust deed. At the time of its drafting, the settlor usually outlines how you are to deal with the trust. This includes making any changes. The trust deed will set out what powers the trustees have and who can appoint and remove trustees. Generally, changes to a trust fall into two categories:
- variations relating to trust property; and
- variations relating to the administration of the trust.
Changes to the trust that are administrative in nature generally will not have any enduring tax consequences or be very difficult legally to implement.
For example, changing the name of the trust is not as momentous. But, any significant changes to the beneficiary’s interest in the trust may have tax consequences, or amount to a resettlement of the trust into an entirely new trust.
How Can I Change My Trust?
By Trust Deed
This is where you follow what the original trust document says for implementing any change. Usually, there would be a clause in the deed outlining:
- the decision-making process;
- who can make changes; and
- what kind of changes you can make to the trust.
By Beneficiary Consent
If the trust deed does not outline a specific process for change or does not cover the change you want to make, you can still implement the change if you have the combined consent of all the beneficiaries of the trust. Beneficiaries or trustees can start this process.
Each beneficiary must sign a written request to make the change, and these have to be sent to one of the trustees. The trustee has to agree to the proposal as well. This variation can include change to the scope and nature of the powers of the trustee.
By Court Order
As a trustee, you can make an application to the court to approve a change to a trust if these other methods do not work. However, this can be a time-consuming and expensive process.
Continue reading this article below the formSome Ways to Change Your Trust
Changing Trustees
A common change that you may need to make is removing and appointing trustees. This is a normal change for trusts, especially ones with long lives. Usually, the trust deed will outline who has the power to remove or appoint trustees (called the ‘appointer’). This person is commonly the settlor, or other trustees. Trustees will retire as they get older, or you may wish to make one of your adult children a trustee of your family trust, so it is important to look ahead when dealing with the changeover.
Generally, this process will involve removing the former trustee’s name from all title owned by the trust and putting assets into the new trustee’s name. This can be a lengthy process if there is a lot of title, so it is best to keep written records you can refer to.
Changing Beneficiaries
Changing beneficiaries is a very context-dependent change, and you should always check the trust deed first. Some trusts will have a broad class of people as beneficiaries.
For example, all future children for a family trust. But, others will be very specific as to who the beneficiaries are from the trust’s creation. You must, therefore, take care when trying to make a change of this nature.
Key Takeaways
Trusts can exist for a long time, so certain administrative changes, such as changing trustees, are inevitable. But, you have to be careful with some modifications you make. If the trust changes so much as to create an entirely new beneficial interest, or its purpose changes entirely, this can amount to a resettlement of trust. This would make an altogether new trust, which if not done correctly, could have unintended tax consequences or be declared invalid.
Frequently Asked Questions
A trust is a legal relationship that arises when the settlor gives property to a trustee to hold and maintain for the benefit of the trust’s beneficiaries. There are different kinds of trusts – an example is a discretionary trust, where trustees have the discretion to decide how much income from the trust’s assets to distribute to beneficiaries.
A trustee is the person (or company, if they are a corporate trustee) who manages the trust for the benefit of its beneficiaries. They have set responsibilities that they must fulfil – such as maintaining current written records of the trust’s operations and make prudent business decisions about the trust’s assets.
A family trust is a kind of trust you can set up to benefit your family members. This means that your family members are usually the beneficiaries, and they receive any income generated by assets held in the trust. A family member may also be the trustee of your trust.
Usually, you would change your family or discretionary trust by using the process outlined in the trust deed. But, you can also change the trust if you have the combined consent of all trust beneficiaries or some circumstances you can apply for a court order to change the trust.
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